Steel price drop may force shutdowns, job cuts

ArcelorMittal South Africa, the South African arm of the world’s largest steel producer, on Wednesday warned that if steel prices slid further it may be forced to look at shutting down facilities and cutting permanent staff levels.

The company has so far avoided lying off permanent staff although it has cut back on contract and hired labour.

Releasing the company’s first quarter results, CEO Nonkululeko Nyembezi-Heita told a newswires conference call that she could “simply cannot say” whether the company would be able to continue to protect permanent employment.

Nyembezi-Heita said that while we all hope for a better tomorrow, the business had to be managed for today.

She warned if steel prices continue to slide, the company would be forced to look at its facilities and if some and if these were shut down, this would have an impact on permanent staff.

The company reported a headline loss of R237-million for the first quarter of 2009, down from a profit of R2-billion for the same quarter last year and from a R1,14-billion profit for the fourth quarter last year.

This is the company’s first quarterly loss since it was unbundled mid-2001.

Nyembezi-Heita attributed the sharp reversal in earnings to the decline in demand and prices of steel and the persistence of high contract prices for raw material inputs, particularly coking coal.

Liquid steel production at 1,16 million tonnes was 26% lower than the first quarter last year but up 38% on the fourth quarter of 2008.

Production levels fell from around 80% of capacity in the first quarter last year to a low of below 50% in the fourth quarter as the company aligned the supply of steel to reduced demand levels.

The first quarter this year saw production pick up to levels of around 60% of capacity as the loss in sales on the domestic market was shifted to export orders.

Nyembezi-Heita said the company expected production to be at about 65% of capacity in the second quarter of 2009, but said she could not at this point make any guess as to what production levels would be for the second half of the year.

Results for the second quarter are expected to improve marginally.

At 11.26am shares in ArcelorMittal were trading 5,33% or R4 firmer at R79 on the JSE. — I-Net Bridge

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